FAVOURABLE ISSUE CO LTD v. SECRETARY FOR JUSTICE

HCA 3344/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3344 OF 2001

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J U D G M E N T

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Background

1. By an Agreement and Conditions of Exchange bearing new Grant No.3900 and dated 3^rd February 1962, the Government of Hong Kong granted to Lui Wing Shui (“the 1^st Owner”) a Crown Lease of Lot No.433 in Demarcation District No.399 Ting Kau, New Territories, Hong Kong (“the Lot”) of an area of about 2,344 square feet (or 217.60 square meters).

2. The 1^st Owner by a Deed of Gift dated 19^th November 1966 and registered at the Land Registry by Memorial No.79991, assigned his rights and obligations under the Conditions of Exchange to Mrs. Tang Chan Hea Wen (“the 2^nd Owner”). 

3. In about mid 1968 the 2^nd Owner built a 2-storey residence on the Lot known as Upper Lido Green, 11½ Milestones, Castle Peak Road (“the House”).  The House as erected by the 2^nd Owner extended to 106.50 square meters which represented 48.9% of the Lot.

4. By Crown land Permit No.W04027 the 2^nd Owner, commencing from 1^st July 1968, was permitted to occupy a piece of Crown Land of an area of about 7,252 sq. ft. as a garden (“the Garden Permit”).  This garden abounded Lot No. 433. 

5. It was an express term of the Garden Permit that no structure of any type should be erected on the Garden Lot without the written permission of the District Commissioner. 

6. By Crown Land Permit No.3585 of 1^st May 1967 the 2^nd Owner was granted permission to use Crown Land for the purposes of “intake and pipeline, approach road, septic tank and soakage pit.”  This permit was later replaced by Crown Land Permit WO6384 from 1^st January 1973 for the use of “approach road, septic tank and soakage pit ” (“the New Road Permit”).

7. By an Assignment dated 1^st August 1985 and registered at the Land Registry by Memorial No. 357328, the Plaintiff became and has since remained the registered owner of the Lot. 

8. By a letter dated 2^nd May 1989 the District Lands Office, Tsuen Wan (“DLO-TW”) alleged that there were breaches of the government lease and threatened the Plaintiff with re-entry.  The relevant parts of this letter are in the following terms :

“Under the Lease Conditions governing the Lot, no structure shall exceed a height of 25 feet above the mean formation level of the Lot, and the maximum area that may be built over shall not exceed 30% of the area of the Lot. (Special Condition No.10 refers).

The Lot extends to approximately 217.76 square meters (2,344 square feet) and therefore the maximum permitted built over area of the Lot is 65.33 square meters. A recent site inspection has revealed that the actual built over area of the Lot extends to approximately 106.5 meters or 48.9% of the area of the Lot.

As such you are in serious breach of the Lease Conditions governing this Lot and I will be obliged if you would advise me within one month from the date of this letter how you intend to rectify the situation.”

9. By a letter dated 21^st July 1989 and addressed to the 2^nd Owner, the DLO-TW alleged breaches of the Garden Permit and New Road Permit and threatened the 2^nd Owner with cancellation of those permits.  The relevant terms of that letter are as follows :

“My staff visited the premises recently and found that the following irregularities were in existence:-

(i) An unauthorized domestic structure measuring about 26.5 meters which appeared to be an extension of the main building on Lot 433.

(ii) A concrete stairway partly constructed over the licensed area, and

(iii) An unauthorized shelter measuring about 8.20 square meters, erected in the garden area.

As the aforementioned irregularities are in contravention of the General Condition No.9 of the said Licences, I have to advise you that you are required to rectify the irregularities within 28 days from the date of this letter.  If you fail to comply with the licensed conditions I shall have no alternative but to cancel the said Licences in accordance with the General Condition No.3 thereof.”

10. By a letter of 8^th November 1989 the DLO-TW wrote to the 2^nd Owner cancelling the Garden Permit and the New Road Permit.

11. In order to address these alleged breaches of the lease and the two permits, the Plaintiff entered into prolonged correspondence with the DLO-TW. In the event the DLO-TW offered the Plaintiff and the Plaintiff accepted

(a)  A temporary waiver (“TW”) in respect of the alleged breaches of the lease and dated 4^th December 1996.

(b)  A short-term tenancy (“STT”) in respect of the New Road and Garden Permits and dated 29^th November 1996.

12. The Plaintiff paid all the fees under the TW until 10^th June 1998, and all the fees under the STT until 10^th September 1998. 

13. The relevant general and special conditions of exchange of New Grant No.3900 are as follows :

  General Condition 4A :-

“The Grantee shall develop the Lot by the erection thereon of a building or buildings complying with the Special Conditions ….”

  General Condition 8 :-

“The fulfillment by the Grantee of his obligations under these general and special conditions shall be a condition precedent to the Grant or continuance of the tenancy and in the event of any default by the Grantee in complying therewith, such default shall be deemed to be a continuing breach and the subsequent acceptance by or on behalf of the Crown of any crown rent or rates or other payment whatsoever shall not (except where the Crown has notice of such breach and has expressly acquiesced therein) be deemed to constitute any waiver or relinquishment or otherwise prejudice the enforcement of Crown’s right of re-entry for or on account of such default or any other rights, remedies or claims of the Crown in respect thereof under these Conditions, and shall continue in force and shall apply also in respect of default by the Grantee in the fulfillment of his obligations under the General and Special Conditions within any extended or substituted period as if it had been the period originally provided.”

  General Condition 9(a) :-

“Should the Grantee fail or neglect to observe or comply with any of the conditions of this Agreement, the Crown shall be entitled to re-enter upon or retain the old Lot and to re-enter upon and take back possession of the Lot and all buildings, erections and works thereon. …”

  Special Condition 8 :-

“The design, disposition and height of any building to be erected on the Lot shall be subject to the approval in writing of the District Commissioner, New Territories.”

  Special Condition 9 :-

“Space shall be provided within the Lot to the satisfaction of the District Commissioner, New Territories for the parking of not less than two motor vehicles, and the space so provided should not be used for any other purpose.”

  Special Condition 10 :-

“No part of any structure shall exceed the height of 25 feet above the mean formation level of the Lot, and the maximum area of the Lot that may be built over shall not exceed 30% of the area of the Lot.”

  Special Condition 21 :-

“A right of way from the waterwork road indicated on Plan 1 to the Lot on a line and at such levels as may be approved by the District Commissioner, New Territories will be given. The Grantee shall construct a road or path on the piece of ground over and along which such right of way shall be given at such time or times and in such manner as the District Commissioner may approve, and shall uphold, maintain and repair such road or path and everything forming a portion of or pertaining to it to the satisfaction of the District Commissioner, and the Grantee shall be responsible for the same as if he were the absolute owner thereof.”

  Special Condition 22 :-

“The grant of the right of way referred to in Special Condition No.21 shall be in such form and on such conditions as may be approved by the Land Officer, and shall not give the Grantee the exclusive right to use the road or path constructed by him.”

The structure of the House

14. A number of plans have been referred to by the parties.  Perhaps the most useful and the one referred to most by the parties is that found at C1-81 which has been referred to as the Rating and Valuation Department Plan (“the RVD Plan”).  The RVD Plan is dated 6^th April 1967 but was apparently used by the RVD when it inspected the House and the surrounding grounds on 19^th February 1969, which was about half a year after the Occupation Permit was issued on 7^th June 1968 and the letter of compliance on 15^th June 1968.  Notations have been made on this RVD Plan, for example the words “drying area” and “concrete floor” appear to have been added to the Plan, in all probability by the RVD personnel (I refer to the ground floor portion of the RVD Plan).

15. Section B-B of the RVD Plan discloses an area under the road/ramp which eventually was converted into a room, and which the parties have described in these proceedings as “Room 1”, which but for an insignificant portion, is on government land.

16. Under the car port and within the Lot is an area variously described in these proceedings as “Room 2” and as the “drying area” with concrete floor. 

17. I have also been shown aerial photographs of the House, in particular at A-88 which shows the premises in 1969 and again in 1972.

18. The parties have also produced sets of photographs in particular at A115 to 118 and A129 to 131.

19. The question of a site visit was mooted with the Court but in the event it was decided by all that such a site inspection was unnecessary.  The combination of maps, photographs, and the oral evidence of the witnesses has left me no doubt as to the geography of these premises.

The Witnesses

Mr Rue Steele Marshall

20. Mr Marshall first moved into the premises in 1979 as a tenant.  In April 1985 the Plaintiff was incorporated and Mr Marshall used the Plaintiff as the vehicle through which to purchase the property.  There is no dispute that at all material times Mr Marshall thereafter acted on behalf of the Plaintiff Company. 

21. Mr Marshall confirmed that alterations had occurred on the property without planning permission, in particular

(a)  The covered car port was bricked in on three sides to make a bedroom.

(Photo 1A page 93)

(b)  Both levels of the covered terrace were bricked in to increase the size of the living room and bed room (Photo 4 Bundle A page 116).

22. As to the room beneath the road/ramp described by the parties as “Room 1”, Mr Cooney SC who appeared upon behalf of the Plaintiff had originally suggested that this “room” was in existence at the time the Occupation Permit and letter of compliance were issued in 1968.  However, upon taking further instructions, Mr Cooney no longer asserts this, but is content to allege that Room 1 was in existence in 1972 (the time of the aerial photograph at Bundle A page 88).

23. Mr Marshall gave evidence of his dealings with the DLO/TW and that in respect of the two Crown Permits, the Permit fees were paid by the Plaintiff, or by Mr Marshall on behalf of the Plaintiff.

24. Mr Marshall also gave evidence of entering into the TW and the STT.  In answer to a question as to why he has said the STT and TW were signed “under protest”, he told the Court :-

“The Lands Department was threatening to come in and tear down the house if we did not sign the short term tenancy and the waiver.”

25. In respect of the canopy in the garden, said to be a structure, Mr Marshall said that he had removed this structure but was unable to tell the Court exactly when this had occurred.

26. Mr Marshall confirmed that he vacated the property when the control of the Plaintiff Company was acquired by Dr. Michael Hoffman in 1997.

Dr. Michael Hoffman

27. Dr. Hoffman was approached by Mr Marshall in 1988 to assist him with the difficulties Mr Marshall was experiencing with the DLO/TW.

  Dr. Hoffman described Mr Marshall and himself as follows (para.3 of his witness statement) :

“We were both naïve novices when it came to Government Land matters and we assumed that the authorities were accurate and forthright about every aspect of the property. Threats of re-entry and demolition were frightening and I advised Mr Marshall to take a passive attitude and wait to see what the Government wanted to do.”

“After 2 or 3 meetings the DLO came to Mr Marshall with an ultimatum, either accept their proposal and temporary solution or be prepared for re-entry and demolition.”

28. Dr. Hoffman went on to describe his efforts to assist Mr Marshall. Dr. Hoffman later acquired a controlling interest in the Plaintiff in 1997, and thereafter continued efforts on behalf of the Plaintiff to seek a solution from the Lands Department, including a formal request on 31^st August 1998 for a “land exchange”.

29. Dr. Hoffman’s protracted correspondence and meetings with various government departments in the end came to nothing, and he then caused the Plaintiff to institute these proceedings.

Mr Tsui Kwan Yu

30. Mr Tsui is a senior estate surveyor of the Lands Department.  He has been posted to the District Lands Office, Tsuen Wan since mid February 2005. 

31. Mr Tsui’s evidence was directed towards the documentary material concerning Lot No.433, all of which had been created before Mr Tsui took up his position with the DLO/TW.  Whilst Mr Tsui’s commentary and observations on certain of the documentary evidence was at times helpful, his evidence overall was of limited assistance.  The Court can (and has) read itself the documents referred to by Mr Tsui. 

32. Mr Tsui’s evidence did however deal with an unusual and important aspect of this case.  That is the loss of

(a)  the approved building plans and approval records for the building erected on Lot No. 433 :-

I am told by Counsel for the Defendant, Mr Mok Yeuk Chi that the Defendant realized it had lost these documents on 6^th June 1989.  These critical documents have never been found.  No satisfactory explanation was provided to the Court as to how these documents may have come to have been lost. The plans were, I was told, supposed to be in the custody of the Buildings Department.

(b)  The Lot file relating to Lot No.433 :-

This file contained the minutes, site reports, the correspondence relating to the alleged waiver of Special Condition 10, and the government’s letter of compliance.  Mr Tsui set out in his evidence the documents that were in this file, including most of the earlier unapproved plans of the property. I am told by Counsel for the Defendant that it was realized that the Lot file was lost on 12^th October 1988.  The file was in fact found again, but not until after these proceedings had commenced.

33. Thus at the crucial time when the TW and the STT were negotiated and granted, the approved building plans and approval records for the building on the Lot, together with the Lot file containing what appeared to be most of the relevant documents (relevant in the sense of important to these proceedings) were not available to the DLO/TW.  Mr Tsui did stress however that a drainage plan [C1 P39] and the lease were at all times available to the DLO/TW. 

34. I am further informed by Counsel for the Defendant that there is no record that the Plaintiff was ever informed that the approved plans and Lot file were missing, at least up until the TW and STT were granted.

Mr Ho Tak Man

35. Mr Ho gave evidence by way of a statement produced under a hearsay notice, having retired from the Civil Service in about August 2003.  His evidence was concerned primarily with a memo No. 44 dated 17^th October 1991 and the accuracy of what was contained in that memo in relation to alleged statements made by Mr Marshall.  These allegations were never put to Mr Marshall in cross- examination, and in all the circumstances I have attached no weight to Mr Ho’s evidence.

36. Both parties originally intended to call expert evidence as to the structure of the house.  However, as the trial progressed both parties decided to dispense with this evidence.

37. The Plaintiff’s case – a brief summary

37.1  The House erected on Lot 433 by Mrs. Tan Chan Hea Wan (“the 2^nd Owner”) has a built over area of 106.5 meters which represents 48.9% of Lot No.433.

37.2  Special Condition 10 of New Grant No.3900 was waived by the District Commissioner New Territories, permitting the built over area to be extended from 30% to 48.9%. Mr Cooney, SC relies in this regard upon correspondence passing between the 2^nd Owner’s architect, Guy WK Chan Esq and the District Officer Tsuen Wan, and upon the letter of Compliance issued by the District Commissioner, New Territories to the 2^nd Owner and dated 15^th June 1968.

37.3  That the Plaintiff had by novation or alternatively by conduct been substituted as the Permittee under Crown Land Permit Nos. W04027 (“the Garden Permit”) and W6484(“the New Road Permit”). [The issue of novation has now been abandoned].

37.4  That by the letter dated 2^nd May 1989 to the Plaintiff, the DLO/TW wrongfully set up SC-10 and threatened to re-enter Lot 433 if the Plaintiff failed to provide a satisfactory remedy to the alleged breach of SC-10. 

37.5  That the DLO-TW wrongfully cancelled the Garden Permit and the New Road Permit.

37.6  That the DLO-TW wrongfully imposed the TW in respect of Lot 433, and the STT in respect to the area covered by the Garden Permit and the New Road Permit.

37.7  That the Plaintiff accepted the TW and STT and paid the permit fees only as a result of a mistaken belief that SC-10 was still in force, and that there existed irregularities in respect of the Garden Permit and the New Road Permit.

In the event, the Plaintiff seeks

(a)  A declaration that the Government has waived and is and was at all material times estopped and/or precluded from enforcing SC-10.

(b)  A rescission of the purported TW.

(c)  An order that the Government repay sums paid by the Plaintiff under the purported TW.

(d)  Declarations that the Government was not entitled to cancel the Garden Permit nor the New Road Permit and that both are still valid and subsisting for the benefit of the Plaintiff.

(e)  A rescission of the purported STT; and

(f)  An order that the Government do repay sums paid by the Plaintiff under the purported STT.

The Defendant’s case – a brief summary

38. The Defendant denies that there was any waiver of SC-10 preferring to describe the same as a “relaxation” of SC-10.

39. Whilst accepting that the “relaxation” of SC-10 resulted in the property being “built over”, that the same was conditional upon the building remaining as that depicted on the amended plans submitted by the 2^nd Owner’s architect.  Counsel for the Defendant put his case as follows :

“The building should remain true to the spirit of the amended plans.”

If the “Conditional Agreement” should be breached the DLO-TW (says Mr Mok) would be entitled to enforce SC-10.

40. Mr Mok has also sought to rely upon SC-9 alleging that the Plaintiff was in breach of SC-9 in having used the area under the carport as a bed room, in breach of the covenant that the car port “should not be used for any other purpose”.  Mr Mok submits such breach entitles the property to be re-entered.

41. As to the Road Permit, the Defendant says that there were clear breaches of this Permit.  The construction and use of the area underneath the road/ramp as a bedroom is said to be a breach of the Road Permit, as is the position of the landing of the new single flight staircase, which overhangs the Road Permit area.

42. As regards the Garden Permit the Defendant says that the canopy erected in the garden is a structure within the meaning of the Garden Permit.  That the Government required removal of the canopy; it was not removed and in consequence the Garden Permit was cancelled.

43. As to Plaintiff by novation or by conduct having been substituted as the Permittee of the Garden Permit and the New Road Permit, the Defendant denied that there has been, as a matter of law, any novation.  The Plaintiff’s claim in this regard has as noted now been abandoned.  Furthermore that the conduct relied upon does not amount to a substitution of the Plaintiff as Permittee.

44. The Defendant says in any event that the STT and TW were compromises of the DLO’s threats to en-enter the Lot, made by the DLO-TW letter of 2^nd May 1989 [C2-P203],and to take possession of the Garden and New Road Permit areas, by letter of 8^th November 1989 [C2-P213]. 

45. As such, says the Defendant, the Plaintiff is now estopped from denying the compromises and pursuing its claim in relation to the alleged waiver of SC-10, and the alleged perceived irregularities in respect of the Garden and the New Road Permits.

46. The parties have provided the Court with a List of Agreed Issues. They are as follows :

The Issues

SC 10 and SC9

(1)  Did the District Officer, Tsuen Wan (“DO”) by the letter, dated 7 July 1968, [C2/36] and/or by letter, dated 15 June 1968 (“the Letter of Compliance”) [C1/69], waive Special Condition 10 of New Grant No. 3900 (“SC-10”) (P’s case)? Or did he agree not to object to the exclusion of the first floor terrace and the carport from the calculation of the 30% built over area under SC-10 upon the condition alleged by the Defendant (D’s case)?

(2)  Was the District Land Office, Tsuen Wan (“DLO”) entitled to enforce SC-10 as from 1989 until the parties entered into the Temporary Waiver (“TW”)?

(3)  Did the DLO, on behalf of the Government of Hong Kong, grant a TW to the Plaintiff and did the Plaintiff accept the TW upon the common mistake that DLO was entitled to enforce SC-10?

(4)  Has the DLO pleaded that he is entitled to rely on SC-9 to resist the Plaintiff’s claim to rescind the TW?  If yes, notwithstanding that SC-9 was not referred to until the Defendant filed its Amended Defence, is the DLO entitled to rely on SC-9 to resist the Plaintiff’s claim to rescind the TW?

  Crown Land Permit No. W04027 (“The Garden Permit”)

(5)  Had the DLO, by conduct, granted to the Plaintiff and had the Plaintiff accepted a permit to use, occupy and enjoy the Garden Lot on the same terms and conditions as the Garden Permit? (The Plaintiff no longer relies on novation.)

(6)  Was the canopy at the north side of the house a “structure” within the meaning of the Garden Permit?  If yes, was the DLO entitled to cancel the Garden Permit in view of the said canopy?

  Crown Land Permit No. W0638 (“the New Road Permit”)

(7)  Had the DLO, by conduct, granted to the Plaintiff and had the Plaintiff accepted a permit to use, occupy and enjoy the Road Lot on the same terms and conditions as the New Road Permit? (The Plaintiff no longer relies on novation.)

(8)  Was the DLO entitled to cancel the New Road Permit on the ground that

(1)  The staircase landing protruded over the Road Lot and/or

(2)  The unauthorized domestic structure (Room 1) measuring about 26.5 square metres, which appeared to be an extension of the main building on Lot 433.

(9)  In respect of issue 8(2), did the New Road Permit regularize the alleged encroachment of part of Room 1 onto the Road Lot and, if so, did it render the ground to cancel the New Road Permit referred to in Issue 8(2) wrongful?

  Rescission of the STT and/or TW

(10)  Did the Plaintiff and the DLO enter into the Short Term Tenancy (“STT”) upon the common mistake that there had been a breach of the Garden Permit and the New Road Permit?

(11)  Is the Plaintiff estopped from alleging that (a) it was not in breach of SC-10 and the Garden and New Road Permits; and/or (b) it accepted the TW and/or STT by mutual mistake; and/or (c) the TW and STT are not binding and effective; and/or (d) the Plaintiff is not liable to pay the fees as provided under the TW and/or STT?

Discussion

Issue 1 - SC-10 and the question of waiver

47. Mr Cooney, SC’s case is a relatively simple one.

48. The 1^st Owner instructed a firm of architects, Guy WK Chan to prepare building plans in relation to the Lot.  On 26^th May 1966 the Building Authority initially refused to approve the architect’s plans and advised the architect to refer the matter to the District Officer (“DO”) [C1 P24].

49. By a letter of 3^rd June 1966 from the architect to DO-TW [C1-P25], the architect enquired of the DO-TW whether it had objections under the Crown Lease to the following three points :

(a)  The stairhead exceeds 25 feet.

(b)  The 1^st floor terrace and car port not to be included in the calculation of coverage, and

(c)  Filling slopes outside of the east and west boundaries and to the access right of way.

50. The architect submitted plans dated 4^th June 1966 to the DO which included a calculation of site coverage [C1 P25, plans at C1-PP26-30]. These plans did not meet with the DO’s approval.

51. The architect, on 28^th June 1966, submitted amended plans to the DO [C1-PP32-35].

52. By a letter dated 7^th July 1966 to the architect [C1-P36] the DO-TW stated :

“I refer to your letter dated 28^th June 1966 and confirm that on the basis of the amended plans now submitted numbered 5/6, 3/6 and 2/6 and dated 30^th June 1966, I do not object to :-

(i) The staircase enclosure exceeding a height of 25 feet above Lot mean formation level.

(ii) The first floor terrace and car port not being included in the calculation for coverage.

(iii)  The illustrated cutting into the Crown Land outside the Lot boundaries.”

53. Pausing here it is common ground that the non-objection to the first floor terrace and car port being included in the calculation for coverage increased the built over area from 30% to 48.9%. 

54. On 15^th August 1966 the Building Authority signified its approval of the building plans submitted by the architect [C1-P55].

55. On 23^rd August 1966 the District Commissioner, Tsuen Wan approved the design, deposition and height of the proposed building shown on the plan submitted to the Building Authority. [C1-5-38]

56. On 19^th November 1966 the 1^st Owner assigned the Lot to the 2^nd Owner, and on 6^th March 1967 the Building Authority gave its consent to commence building work. [C1-44]

57. On 8^th May 1968 the Chief Building Surveyor of the Building and Lands Department wrote to the DO advising that an application for an Occupation Permit (“OP”) was received and asked the DO to inspect.

58. On 7^th June 1968 the Building Authority issued the OP [C1-67].

59. On 15^th June 1968 the District Commissioner, Tsuen Wan issued a Letter of Compliance [C1-69] in the following terms :

“I have the honour to inform you that all the General and Special Conditions governing the Lot (Lot 433) have been completed with to my satisfaction.”

60. Mr Cooney submits that the District Officer, Tsuen Wan’s letter of 7^th July 1966, together with the letter of compliance dated 15^th June 1968 amounted to a waiver of SC-10.  Another way of looking at the matter (says Mr Cooney) is that SC-10 was waived by the letter of 7^th July 1966, the 2^nd Owner then in consequence built on the Lot to 48.9%, and then received the letter of compliance dated 15^th June 1968 which confirmed the waiver. 

61. In response, Mr Mok on behalf of the Secretary for Justice accepted in his final submissions that 48.9% of the property was “built over” at the relevant time. Neither party were able to locate a definition of the expression “built over”, but in the event the meaning of this expression was not a controversial matter as it was accepted that in fact 48.9% had been “built over”.

62. As to the question of waiver, however, Mr Mok prefers to describe the terms of the DO’s letter of 7^th July 1966 as “a partial relaxation of SC-10”.  Mr Mok says that the covenant was not waived by the correspondence but what was obtained was merely a “partial relaxation of SC-10”.  However, Mr Mok accepted that the built over area up to 48.9% was not initially a breach of SC-10, because there was a “relaxation” of SC-10.

63. Mr Mok further submitted that taking all the circumstances together, including the communications which took place between the architect and the government departments, that the DO-TW had only given the letter of compliance pursuant to a “conditional agreement” to exclude the areas of the first floor terrace and the car port from calculation of the 30% of the built over area. Thus the building to be built on the Lot had to remain “true to the spirit” of the amended plans.  That once this condition should be breached, the DO-TW would be entitled to enforce SC-10 on the basis that the first floor terrace and the car port exceeded the permitted 30% built over area.

64. Mr Mok expanded upon on what he has called the conditional nature of this “agreement” to say that although the car port and terrace could technically be viewed as built over areas, they were not to be used as part of the domestic volume envisaged by SC-10.  Further that the design of the entire volume of the domestic interior envisaged by SC-10 was to be confined within the 2-storey main building.

65. Mr Mok sought to fortify his submissions by referring in particular to the expression in the DO-TW’s letter of 7^th July 1966, that the non- objection was granted

“on the basis of the amended plans”

66. I have sought to summarize the arguments advanced by both parties in relation to the question of a waiver.  I have had the benefit of very detailed written and oral submissions from the parties which I have considered most carefully, together with the relevant authorities cited to me. 

67. Considering of all the relevant circumstances, I have no doubt that there was a waiver of SC-10 which permitted the built over area of the House to be increased from 30 to 48.9%.  Mr Cooney has submitted that Mr Mok’s characterization of this matter as a “partial relaxation”, is merely semantics.  I agree. 

68. I am unable to accept Mr Mok’s submissions that the waiver I have found to have occurred, was somehow conditional upon the property remaining “true to the spirit” of the architect’s amended plans.  The Plaintiff has admitted that it later enclosed the terrace of the house and the car port after it bought the property.  Mr Cooney submits that whilst this may amount to a change of user, for which remedies might be sought pursuant other conditions of the lease, such change of user did not engage SC-10, which is a condition dealing with the “built over” area of the Lot.  I accept this submission. 

69. I can, with respect, find no express or implied conditions of the nature contended for by Mr Mok.  I have been unable to find the terms “domestic interior” or “domestic area” or “domestic volume” in any of the contemporaneous correspondence.

70. The expression “on the basis of the amended plans now submitted” found in the letter of 7^th July 1966 does no more than confirm that the building as depicted in the architect’s amended plans be permitted to include the first floor terrace and car port as part of the built over area.  The words in my view in no way engender an agreement that the waiver I have found to exist would cease if the Owner started any building works which would change the user (as opposed to the built over area) of the premises.

Issues 2 and 3 – Common mistake and entitlement to enforce SC-10

71. The District Lands Officer, Tsuen Wan as noted, wrote to the Plaintiff on 2^nd May 1989 in the terms set out in paragraph 8 herein [C2-P203].

72. By way of a letter dated 29^th May 1989 [C2-P204] the Plaintiff replied as follows :

“Your letter of 2^nd May concerning the property (Lot 433 in DD399) has come as quite a surprise to us.

We purchased the property some years ago and we were unaware of any breaches of the lease conditions as the building has covered the same ground area for over 11 years that we know of, and most probably for a longer period than that.

The previous government drawings that we have seen have indicated that the structure has been on record as being the same area for some time.

As we are not experts on what options are available to rectify the situation, we would like to arrange a meeting with you to discuss the above as soon as possible.”

73. A site inspection took place on 23^rd November 1989 by the DO, together with Mr Marshall who, through the Plaintiff, owned the Lot at that time.  Memo No.8 refers [C2-P217].  The memo records as follows :

“4. As revealed by the Lot owner (Mr Marshall) he had already received a warning letter from this office asking him to rectify the situation. He said he is willing to pay govt a premium to rectify the situation as he had difficulties to make the site coverage within the approved percentage, and in fact the structure should had been approved before he moved in.”

74. Another site visit took place on around 31^st May 1990.  Memo M.22 refers [C2-P229].  In that memo the DO records :

“I visited Lot 433 in DD399 this morning and met Mr Rue Marshall the owner. He was told to note Special Condition No.10 of New Grant No. 3900 which stipulated that :

“No part of any structure shall exceed the height of 25 feet above the mean formation level of the Lot and the maximum area of the Lot that may be built over shall not exceed 30% of the area of the Lot.”

…..

(ii) Mr Marshall requested govt to consider modification of the lease conditions to remedy the excessive built over area. I told him that govt would only consider his request if he demolished voluntarily …. (the memo sets out a number of structures).

(iii) Mr Marshall was also told that this office was seeking the advice of CBS-NTI on whether the structure contagious to the building on Lot No. 433 in the DD399 could be removed without affecting the structure or safety of the building on Lot No.433 in DD399. I would come back to him when the advice from CBS-NT was available.

(iv)  After lengthy persuasion Mr Marshall was persuaded to take positive steps to demolish the shades (structures) mentioned in paragraph (ii).”

75. Having considered the above correspondence and indeed all of the relevant correspondence I have no doubt that Mr Marshall on behalf of the Plaintiff was, in his negotiations with the government, laboring under the mistaken belief that the DLO-TW was entitled to enforce SC-10.  I also bear in mind Dr Hoffman’s evidence that from 1988 onwards he assisted Mr Marshall in his negotiations with the DLO-TW, and that as noted

“We were both naïve novices when it came to government land matters and we assumed that the authorities were accurate and forthright about every aspect of the property”. (emphasis added)

This evidence was not challenged by the Defendant.

76. Having determined that the Defendant had in fact waived SC-10, the Defendant also was clearly laboring under the mistaken belief that it could enforce SC-10 if the built over area exceeded 30%.  I note that had the DLO-TW had available to it the approved plans and the materials found in the Lot file (which it did not) it may well have paused for thought before attempting to pursue the Plaintiff for breach of SC-10. 

77. The TW was in fact never formally signed.  However, the Defendant’s position is that there is in existence a TW, and indeed it is suing for the fees in relation to that waiver.  Mr Cooney, SC has directed my attention to a general demand note dated 19^th April 1996 being payment of the waiver fee for the period 11^th March 1995 to 10^th June 1996 [C2-P269],and submits that the TW was effective from 11^th March 1995. I accept these submissions.

78. I have considered the authorities advanced by Counsel in respect to the law relating to common mistake and I accept Mr Cooney’s submissions that

(i)  Both parties held the positive but mistaken belief that there was a breach of SC-10.

(ii)  Neither party gave the other a warranty as to the existence of a breach.

(iii)  The Plaintiff could not have known the truth because it had no knowledge of the letter dated 7^th July 1966 nor the letter of compliance (nor indeed the unapproved plans or other documents found in the Lot file).  The mistake is not attributable to any fault of the Plaintiff.  Nor I find was the DLO/TW at fault.  Although important documentation had been lost, there is no evidence as to how this occurred, and I find that the DLO/TW made an honest, and in the circumstances an understandable mistake.

(iv)  The non-existence of a breach of SC-10 rendered contractual performance of the temporary waiver impossible, because there was nothing to waiver.

(v)  The agreement between the parties was that in return for a fee, government waived a (supposed) breach of SC-10; the waiver was a vital attribute to both the consideration which was to be provided and the circumstances which must subsist if performance of the contract was to be possible.

79. However, my findings in paragraph 78 above, are not conclusive of the matter.  It is necessary to consider agreed Issue 11.

Issue 11 – Estoppel

80. Mr Mok submits that the TW is a compromise agreement.  He says that it was entered into to resolve a dispute between the government and the Plaintiff.  Specifically the Defendant pleads (para 30(b) of the Re-amended Defence and Counterclaim) :

“The Defendant says that the terms of the temporary waiver were agreed upon and accepted by the Plaintiff in writing in consideration of the DLO-TW’s waiver of his rights to re-enter the Lot upon the Plaintiff’s breach of Special Condition 10.”

81. Mr Mok submits that as this was a bona fide compromise, the Plaintiff is now barred from reopening “the underlying dispute”.

82. It is thus important to identify exactly what “the underlying dispute” that was compromised is said to be.  Both parties addressed me in particular in relation to Colchester BC v. Smith [1992] 2 WLR 728.

83. Mr Cooney, SC has submitted, correctly in my view, that a compromise must relate to an existing dispute.  He further submits that there is no true compromise in this case; the parties did not have an antecedent dispute in relation to SC-10, because both parties thought that SC-10 was enforceable.  He refers me to Chitty on Contracts para.3-054 which says :

“A settlement based on a simple mistake of fact shared by both parties may be void for mistake. But this would not be the case where both parties knowingly took the risk that the facts might turn out to be different from the facts as they were alleged or supposed to be, and negotiation of a settlement on disputed facts always takes such element of risk into account.”

84. Mr Cooney submits that in the present case neither party knowingly took a risk that the facts concerning a breach of SC-10 might turn out to be different from the facts that they supposed them to be.  Both parties, Mr Cooney says, accepted there was a breach of SC-10 and as such there were no disputed facts. 

85. I have considered the relevant correspondence very carefully and in particular the correspondence set out in paras.72-75 herein.  In my view the Plaintiff, through Mr Marshall, simply accepted from day one [being the 2^nd May 1989 when the DLO by its letter of that date, alleged that the Plaintiff was in serious breach of the lease conditions, being a breach of SC-10], that the government was correct.

86. I find as a fact that at no stage up until the entering into the TW, did the Plaintiff at any time dispute the Defendant’s allegation that there was a breach of the SC-10 providing a right to re-entry.  At no stage did the Plaintiff balance any possibility that the Defendant may be wrong in its assertion of breach of SC-10, against the prospect of entering into the TW.  As Mr Cooney, SC put it, the Plaintiff’s choice was “do I sign a temporary waiver or suffer re-entry, because I accept that the Defendant can re-enter”; and not “do I sign the temporary or dispute that there is a right to re-entry”.

87. In short, there was no negotiation of a settlement on disputed facts. The Plaintiff as I have found did not dispute the Defendant’s alleged right to re-enter the property.  When the Plaintiff entered into the TW it was not knowingly taking the risk that the facts might turn out to be different from the facts as they were alleged or supposed to be.

88. The Plaintiff is not estopped from alleging that it accepted the TW by mutual mistake.  I find that the TW was entered into by virtue of a mistake of fact shared by both parties, and is thus void. 

Issue No. 4 :- Is the DLO entitled to rely on SC-9?

89. Mr Mok says that at the time when the DLO-TW threated re-entry under SC-10, the Plaintiff was in breach of SC-9 in having used the carport as a bedroom in breach of the covenant that the carport “shall not be used for any other purpose”.

90. Mr Mok conceded that his client had in all the years of correspondence with the Plaintiff, never alleged that there had been a breach of SC-9.  Mr Cooney SC submitted that the attempted reliance upon SC-9 now sought to be employed by Mr Mok had not been pleaded, and that the attempt to utilize SC-9 at this stage of the proceedings was a “and by the way” approach, unsupported by any correspondence or pleading.

91. The first question is whether a positive case under SC-9 has in fact been pleaded.  When this matter was raised, Mr Mok made no application to amend his pleadings, but stood by his pleadings set out in the Defence and Counterclaim.

92. I have considered Mr Mok’s analysis of his pleadings, in particular the matters set out in paragraph 19 of his written closing submissions, together with his closing oral submissions.  Mr Mok relies in particular on paragraph 9(d) of the Re-amended Defence and Counterclaim which says in part :-

“Further the conversion of the carport into a part of the interior of the house and the fourth bedroom was a breach of the Special Condition 9, prohibiting the carport from being used for any purpose other than parking of motor vehicles.”

93. In my view, this singular assertion in no way sets up a positive case  that the Defendant seeks to rely upon a breach of SC-9 as providing a right to re-enter the property, and for consequent declarations thereon from the Court. No positive case having been asserted, it is understandable why the Plaintiff has not sought to plead any defence to SC-9. 

94. The complete lack of any mention of SC-9 over the very many years that the Defendant was in correspondence with the Plaintiff I think supports the view that the attempt to rely upon the few lines quoted from the Re-amended Defence and Counterclaim in relation to SC-9 is an unmeritorious attempt to rely upon a matter which has never been an issue in this case.  As noted Mr Mok could have, but chose not to seek to amend the Defendant’s pleadings.

95. I find that any claim for re-entry based upon SC-9 has not been pleaded.

96. If I am wrong about this, then I would in any event to have held that the Defendant has not made out a case for re-entry of the property, based on SC-9.  SC-9 concerns user whereas SC-10 concerns the built over area.  Mr Cooney SC relies on Chitty para.24-014 which says :-

‘A party cannot rely on a ground which he did not specify at the time of his refusal to perform “if the point which was not taken could have been put right”’.

Mr Cooney, SC submits that enclosing the carport and using it as a bedroom could have been put right by removing the walls if the point had been taken. No SC-9 point was taken by the Defendant in correspondence with the Plaintiff.  If it had done, says Mr Cooney, the Plaintiff would have been in a position to respond, and if thought appropriate, to remedy any perceived breach of SC-9. The complete lack of any mention of SC-9 deprived the Plaintiff of any such opportunity.  I accept these submissions and in the circumstances I would have dismissed (if it had been properly pleaded) Mr Mok’s proposed claim under SC-9.

Issues 5 and 6 :- The Garden Permit

97. Mr Cooney, SC submits that the Hong Kong Government by conduct granted to the Plaintiff, and the Plaintiff by conduct accepted a permit to use, occupy and enjoy the Garden Lot.

98. The evidence of conduct upon which Mr Cooney relies is :

(i)  Acceptance of payment of the permit fee from the Plaintiff.

(ii)  Letters addressed to the 2^nd Owner “or The Occupier” [C2-P133 and C2-P209]

(iii)  The Plaintiff’s payment of the permit fee.

99. During all material times, the Permit remained in the name of the 2^nd Owner.  In my view the proper way to transfer such a permit is to write to the relevant authority, probably the District Officer, and apply for a fresh permit.  Indeed, this was done specifically by the 2^nd Owner on 1^st April 1967 after she bought the property, an earlier permit having been in the name of the 1^st Owner [C1-P45].  No such application was made by the Plaintiff in this case.

100. Although in my view it was perhaps somewhat careless for the DLO-TW to address its correspondence to Madam Tang “or The Occupier”, it still nevertheless recognized that Madam Tang (the 2^nd Owner) was still the permit holder.

101. Mr Cooney SC submits that the correspondence dated 7^th January 1985 [C2-P133] is a matter of offer and acceptance, and the Plaintiff by paying the permit fee had accepted in effect the offer to become the permitee.

102. I am unable to accept these submissions.  If either party had intended to seek to cancel the 2^nd Owner’s permit and seek a new permit, it was plainly able to do so.  The DLO-TW continued to correspond with the 2^nd Owner about the permit plainly recognizing her as the permit holder, and the Plaintiff took no steps to change or to regularize that perception.  The DLO-TW was not offering the Plaintiff a permit, nor was the Plaintiff in the circumstances accepting a permit. 

103. Mr Cooney, SC further submits that the canopy found in the garden at the north side of the house was not a structure within the meaning of the Garden Permit.  I have no hesitation in rejecting this submission.  The structure is some 20 feet by 5 feet and appears to be a metal roof supported by metal beams, and on any reasonable view, is a structure. 

104. Although not to be found in the List of Agreed Issues, Mr Cooney SC did further submit that the use of a canopy in the garden provided storage for garden equipment, and therefore such structure must be within the implied contemplation of the Garden Permit.  Again, I have no hesitation in rejecting this submission; the Garden Permit forbid the erection of “any” structure without the written permission from the District Office.

Issues 7, 8 and 9 :- The New Road Permit

Issue 7 :-

105. Mr Cooney, SC again prays in aid of the arguments advanced in relation to the Garden Permit so far as conduct is concerned.  He points to the correspondence regarding the Road Permit which is addressed to Madam Tang (the 2^nd Owner) “or The Occupier” and makes a similar argument of offer and acceptance to those advanced in respect of the Garden Permit. 

106. For the reasons given above I have rejected this argument.  The DLO did not by conduct grant to the Plaintiff a permit to use, occupy and enjoy the Road Lot on the same terms and conditions as the New Road Permit.

Issue 8 :-

107. The DLO asserts it is entitled to cancel the Road Permit on the grounds that :

(i)  The staircase landing protruded over the Road Lot and/or

(ii)  The unauthorized domestic structure (Room 1) measuring about 26.5 meters which appeared to be an extension of the main building of Lot 433.

108. As to the staircase landing, Mr Cooney, SC says that the landing is an overhang and is not erected on the Road Lot and as such there was no breach. Mr Mok says that Mr Cooney has not in fact pleaded this matter.  I do not think that the Plaintiff has pleaded this matter, but in any event I would reject such argument.  From the photographs I have seen the stair case landing clearly protruded over Government Land.  It appears to be attached to part of the building which itself is part of Government Land. 

109. With respect to the unauthorized domestic structure (Room 1) this structure is plainly on Crown Land (except for an insignificant portion).  In my view there can be no doubt that the DLO/TW was entitled to cancel the New Road Permit in view of this unauthorized structure.  However, it is still necessary to first consider Issue 9.

Issue 9 :-

110. The issue to be determined is whether the Road Permit regularized the encroachment of part of Room 1 onto the Road Lot, and if so, did it render the cancellation of the New Road Permit referred to in Issue 8 wrongful?

111. It does not appear to be disputed that before the commencement of the New Road Permit on 1^st January 1973 there was a room under the road/ramp, being Room 1.  This is apparent from the aerial photograph taken in 1972.  Mr Cooney submits that the renewal of the Road Permit after Room 1 had been constructed regularized what would otherwise have been an unauthorized encroachment onto Crown Land.  Mr Cooney says that the Road Permit does not prohibit building, it prohibits structures erected without permission.

112. With respect I think this submission is devoid of merit.  The Permit itself [C1-P97] refers to “structures permitted on the Permit area”. This part of the Permit is left blank indicating that no permission had been given for any structure.  Furthermore, the Permit refers to “purpose for which land may be used”; the purpose is simply “approach road, septic tank and soakage pit”. 

113. There is no evidence as to whether there was any physical inspection of the property before the New Road Permit was issued in 1973.  Mr Mok described the issue of the Permit as “a desktop job”.  Whether that is so, there is simply no evidence that the premises were inspected and Room 1 was observed built under the ramp, before the New Road Permit was issued.

114. In my view a Road Permit which was issued simply for the purposes of “approach road”, and upon which no structures had been expressly permitted, could not in any way regularize the unauthorized building of a comparatively large room using the road/ramp as its roof.

115. I find that the Road Permit in no way authorized the encroachment of Room 1 onto what was then Crown land. The DLO/TW was perfectly entitled to cancel the same.

Issue 10 :-mistake and the STT

116. It follows from my findings above that there can be no question of any mistake as to any breach of the Garden Permit or New Road Permit.  Furthermore, no issue of estoppel as set out in Issue 11 falls to be determined in relation to the STT.

Conclusions and Reliefs Granted

117. The Plaintiff having succeeded upon Issues 1, 2, 3, 4 and in part Issue 11, I make a Declaration in terms of Prayer 1.1 of the Statement of Claim

“That the Government has waived and is and was at all materials thereby estopped and/or precluded from enforcing Special Condition 10.”

and in terms of Prayer 1.2 of the Statement of Claim :

“That the temporary waiver is void and/or is rescinded.”

118. The Defendant having succeeded on Issues 5, 6, 7, 8, 9, 10 and in part Issue 11, I make a Declaration pursuant to paragraph 3A of the Re-amended Defence and Counterclaim

“That in the event the Plaintiff should fail to pay all outstanding rent and interest in relation to Short Term Tenancy No. 1191TW within 42 days from the date of the Order of this Honourable Court, the Defendant will be entitled to terminate the said Short Term Tenancy No. 1191TW and to take possession of the area under the Short Term Tenancy No.1191TW.”

119. As to sums payable in relation to the STT and sums refundable in respect of the TW, the parties have helpfully provided me with agreed figures.  Thus I order 

(1)  That in respect of the fees paid by the Plaintiff to the Defendant in respect of the TW (including interest) the Defendant do repay to the Plaintiff the sum of $782,619.42 within 42 days of the date of this judgment.

(2)  That the Plaintiff in respect of the STT do pay to the Defendant (including interest) the sum of $1,942,540.75 within 42 days of the date of this judgment.

Costs

120. I have not been addressed by the parties on the question of costs and thus any order now made is an order nisi.  Both parties have succeeded on some of the issues and failed on others.  Having carefully considered the nature and ambit of the issues determined, and the time and effort that would probably have been spent by the parties in preparing and conducting their respective cases, I take the view, looking at the matter in the round, that the final result is very much a draw.  It cannot be said that one party has been substantially more successful than the other. 

121. In these circumstances, I think that the appropriate order is that both parties shall bear their own costs of this Action.  As noted, this is an order nisi which will become absolute 14 days from the date of this judgment, unless either or both parties give notice in that time indicating they wish to be heard on the issue of costs.

122. The parties will draw up an appropriate Order to reflect my findings herein.  There will be liberty to apply.

123. It only remains for me to thank both Counsel for the thorough preparation and presentation of their respective cases.